Consolidation predicted for CRM market

InfoWorld - An overcrowded market, current economic conditions, flat spending and a yearning for suites instead of point solutions will contribute to consolidation in the customer relationship management (CRM) software industry, analyst reports said this week.

Reports from Boston-based investment bank RCW Mirus Inc. and Newton, Mass.-based Meridien Research Inc. both predict consolidation, with Meridien focusing its investigation on CRM spending at financial institutions.

Mirus' software group in its report predicted "that by the end of 2002, the group of 24 public CRM companies we follow will number only five to seven meaningful independent vendors."

"I think what's really going to be the trend here is companies like PeopleSoft Inc. or Siebel Systems Inc. making a decent-sized [acquisition] in the $100 million to $300 million range ... which would make all the other players in the space need to respond," said Mike Murphy, principal analyst in charge of software banking at Mirus. He acknowledged that he didn't have specific information about the acquisition plans of CRM companies.

Enterprises are trying to deal with fewer and more stable vendors, Murphy said. "If you're a company that has only one or two products to offer, it's becoming more and more difficult to sell to these large-enterprise [chief financial officers] reviewing contracts," he explained.

Customers are looking for suites instead of point solutions, according to Mirus. A difficult economy and resulting balance-sheet weaknesses will also stress CRM sales, the company said. The high cost of capital for CRM companies seeking a cash infusion will contribute to the likelihood of consolidations, Mirus said.

Meridien Research, meanwhile, is predicting further market consolidation as financial institutions begin to spend less through next year.

CRM spending at retail-based financial institutions, which deal in business-to-consumer transactions, will stay essentially the same this year as the $6.7 billion spent in 2001, with no significant expansion until 2004, according to Meridien. CRM spending at corporate-based business-to-business financial institutions will remain at $3 billion this year, as institutions examine their return on investment on less-than-successful CRM projects, Meridien said.

Top management at financial institutions will seize upon market confusion to strengthen their arsenal of CRM capabilities, often at bargain terms, Meridien said.